FORMING AN LLC IN ANOTHER STATE
When creating an LLC, many people wonder if there are limits to where you can form it. Essentially, you may ask if you can file your LLC in a state that is not where you run an online business. If you do go this route, you would then look into how to fill out your taxes and any other complications that result from forming the LLC in another state. The good news is that you can form an LLC in a different state and there are experts to help you with taxes and other legalities.
HOW TAX STRUCTURE WORKS
One of the most important parts of forming an LLC in a different state is the tax implications. In the case of a single-member limited liability company with the default tax structure for a partnership, net income goes to the personal income tax return. This means that if your state of residence has income tax, then you pay that state’s tax on your net income. The majority of people who set up an LLC in another state will do so in one without personal income taxes. In this case, there is no concern about paying taxes in multiple states. That is particularly true in the case of no operations in the state where you formed the LLC. However, there may be a small franchise tax in that state.
In the case of an LLC that is taxed via a C corporation structure, this changes slightly. You may need to pay corporate tax where you formed the LLC. Of course, this does not apply if you’ve chosen a state that does not have corporate income or personal income tax.
NO FOREIGN ENTITY REGISTRATION – USUALLY
If your LLC involves working from your house without a separate property in the home state, you can then typically avoid foreign entity registration. In this case, it could be argued that you do not conduct enough business to require registration and oversight tends to be minimal. Even in cases where business earnings are disclosed to the state taxation authority, the Secretary of State will likely not receive this information. Of course, the safest course of action is to complete your foreign entity registration and get the relevant local business licenses. However, the risk if you do not comply will likely be minimal. In most cases, the consequence if you do not register will be a small penalty payment plus past fees.
There are also considerations related to your address if your form the LLC in another state. Companies need registered agents in the state they formed the LLC but not their home states. The registered agent can, but does not have to, provide mail forwarding or scanning services. Alternatively, you can choose to use the mailing address of your home, virtual offices, or P.O. boxes. Keep in mind that your registered agent receives certain official documents, including the first bank documents and the EIN. You will likely choose to use a separate mailing address – not that of the registered agent – for most contacts over mail.
There are numerous benefits to forming an LLC in another state and doing so does not necessarily complicate your business to any significant degree. Consider consulting a professional if you have doubts about the best course of action in your situation.